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Microsoft Still Needs Help Understanding Search

When a company resorts to bribery not once, but twice in an effort to get customers to try their product, you have to consider that maybe there’s something wrong with the product itself. That’s especially true if the product is free – even if rival products are also free. What does that tell us about Microsoft’s recent actions concerning its search engine?

To my way of thinking, it tells us that Microsoft still doesn’t understand search nearly as well as Google or even Yahoo. But you don’t need to believe me when the figures speak for themselves. A little over two years ago, in February 2005, market research firm Nielsen/NetRatings reported that Microsoft had 14 percent of all web searches to itself, compared to Google’s 46 percent share of the market. Two years later, after rebranding its search engine, Microsoft could only claim a 9.6 percent share of web searches, compared to Google’s 56 percent share.

Those percentage points aren’t small potatoes. They represent a loss to Microsoft of nearly 300 million searches per month. This loss is happening at a time when search advertising is set to explode. According to Piper Jaffray, revenues in this field will reach $44.5 billion in 2011. That’s more than double the $15.8 billion they reached in 2006. Even Microsoft can’t ignore those kinds of figures. In the first six months of last year, it made less than $1 billion on search advertising, as opposed to nearly $6 billion on sales of the Windows operating system. But Google recently spent more than $4.5 billion just to acquire two companies, YouTube and DoubleClick. It’s no secret that Google gets most of its money from search advertising. If you were Microsoft, wouldn’t you want a piece of that action?

Clearly Microsoft does want a piece of that action. So far it has been unsuccessful at stealing market share from Google with its own advertising campaigns. And though its product shows signs of improvement, most users seem to agree it still isn’t as good as Google. So rather than out market or out compete the search giant, Microsoft is now trying to out leverage Google with a little bribery.

{mospagebreak title=Buying Search Market Share}

The news was originally broken by John Batelle in his search blog, and later picked up by just about everyone. Microsoft’s new program is called Microsoft Service Credits for Search. It’s aimed at changing the search behavior of employees at large companies. Here’s how it works: companies that sign up for the program earn a $25,000 enrollment credit that can be redeemed for Microsoft products and training. But that’s just the beginning.

If the company promotes use of Microsoft Live Search, it can earn anywhere from $2 to $10 a user annually, depending on how much Microsoft’s search engine is used. Batelle had a PowerPoint slide on his site that explained how it could work. It showed that a company with 10,000 PCs that did a lot of web searching could earn $120,000; a company with 50,000 PCs that didn’t search the web quite as much could earn $200,000. Those numbers can add up very quickly.

So how does Microsoft know you’re really with the program? Every computer at an enterprise participating in the program will have IE7 installed with a “Browser Helper Object.” (I know, I couldn’t help but imagine Clippy popping up and saying “It looks like you’re doing a web search!” either). This lovely addition to IE7 will track search queries and send that information back to Microsoft. The tracker doesn’t work with any other browser – not FireFox, not Opera, not even earlier versions of IE. According to the New York Times, Microsoft wants to sign up 30 companies, each with at least 5,000 computers, who are willing to install this software.

Microsoft is also hoping to convince enterprises to do the marketing for them by promoting the program internally to their staff. Some of the suggestions it has made for promoting it include in-house training sessions on how to improve your search skills (featuring Windows Live Search of course), setting the home page to Live Search, removing all other tool bars from the browser, and even having the CEO send a “message of encouragement” to the staff. Get them to sign up AND get them to do your marketing – talk about killing two birds with one stone!

{mospagebreak title=The Need for Product Improvement}

It’s not just about market share though – or at least, not just about buying it outright and wholesale. As Windows Live spokeswoman Whitney Burk explained in a statement, “Currently, we are conducting a trial program through which Microsoft is providing service or training credits to a select number of enterprise customers based on the number of Web search queries conducted by their employees via Live Search. These customers, in turn, are providing valuable feedback to Microsoft on the use of Web search in an enterprise environment. As search evolves into more of a productivity tool, and revenue sharing becomes more commonplace across the industry, we are engaging in mutually beneficial partnerships such as this and our recently announced deal with Lenovo to more easily enable customers to choose Live Search.” So it’s at least partly about getting the information necessary for improving Microsoft’s search engine.

Apparently Microsoft can’t pull this off with just the web surfers who choose to use its search engine. There are a number of modern applications that “learn” how to be more relevant the more they’re used; consider Amazon’s “those who bought X book also bought Y” feature, or how it suggests new items of interest to you when you log in based on what you have searched for and/or purchased before. The more you use it, the better it gets.

This may be why Microsoft’s search engine isn’t improving fast enough to keep up with Google. As the New York Times explains, “While the quality of results among different search engines is hard to judge objectively, Google enjoys the benefits of a network effect. Its software is tuned to learn from the clicks of its users, and the more users it attracts, the smarter the software evolves, the more users are drawn in, and on the virtuous cycle revolves.”

Still, I can’t help but think that Microsoft is going about this in the wrong way. Sure, the company can leverage its cash and its installed base to give its search a boost, but will the information it gains be enough to permanently improve its market share? Microsoft is probably hoping that being forced to use the product in the work place will change some search habits in the long term. John Batelle thinks it’s more likely to lead to a form of corporate protest against an imposed policy: “How would you feel if, to save a few bucks, the CIO and CFO dictates that you now have to use IE7 preset to Live Search? I can imagine a backlash where usage of Firefox goes way up in large corporations so as to avoid that ‘Browser Helper Object’ installed in IE7…”

{mospagebreak title=It’s Been Done Before}

As I mentioned in the introduction, this isn’t the first time that Microsoft has gone after searchers with some kind of reward to get them to use its search engine. Last year it ran “MSN Search and Win,” a contest of sorts where users of MSN Search could win prizes instantly ranging from a Starbucks gift certificate to a Panasonic high-definition TV. The five-month-long promotion, according to Adam Sohn, director of global sales and marketing for Windows Live, “drove tens of millions of queries and for a relatively small amount of money.”

Microsoft isn’t the only company to consider this kind of scheme. About the same time Microsoft came out with MSN Search and Win, Yahoo surveyed its Yahoo Mail customers to see what incentives would entice them into designating Yahoo as their primary search engine. The ten-item list included things such as free music downloads, a Netflix discount, donations to charity, and PC-to-phone calling credit. Yahoo ultimately decided not to create a rewards program.

Still, such programs are time-honored traditions in other industries; just think about airlines and frequent flier miles. There are a number of reasons why Microsoft’s version might not work as well as the airlines’ programs, however. Just looking at frequent flier programs among business travelers, it’s easy to see that employees benefit from earning the miles, but their companies pay for the product. As Mara Lederman, an assistant professor of strategic management at the University of Toronto points out, “If the fare for your preferred airline is $100 more, you don’t care because you don’t pay. You just want the points because you want to take your family to Hawaii.”

Internet search doesn’t cost the searcher anything whether they’re searching on Google, Yahoo, Microsoft Live, Ask, Searchles, or any of hundreds of search engines. But Lederman notes that “there’s no reward going directly to the individual carrying out the search.” In other words, the business as a whole might have an incentive to earn money from Microsoft, but the employees within the business will look at it, think “What’s in it for me?” and not see any point to using Microsoft Live rather than Google.

Indeed, there’s still plenty of reason to prefer Google in a work environment. If Google delivers more relevant results, it makes employees more efficient because they can find what they need more quickly than they would with Microsoft Live. Microsoft Service Credits for Search may have a certain short term effect, but the only way it’s going to increase its market share in search is by delivering a better product. To put it bluntly, as blogger and former Microsoft employee Robert Scoble did, Microsoft needs to “Ship a better search a better advertising system than Google, a better hosting service than Amazon, a better cross-platform Web development ecosystem than Adobe, and get some services out there that are innovative (where’s the video RSS reader? Blog search? Something like Yahoo’s Pipes? A real blog service? A way to look up people?) That’s how you win.” Microsoft seems to have forgotten this a long time ago.